CAIRO, Dec 29 (Reuters) - Egyptian prosecutors and
police raided offices of 17 pro-democracy and human rights
groups on Thursday - drawing criticism from the United States
which hinted it could review its $1.3 billion in annual military
aid.

The official MENA news agency said the groups had been
searched in an investigation into foreign funding.

"The public prosecutor has searched 17 civil society
organisations, local and foreign, as part of the foreign funding
case," MENA cited the prosecutor's office as saying. "The search
is based on evidence showing violation of Egyptian laws
including not having permits."

Among groups targeted were the local offices of the
U.S.-based International Republican Institute (IRI) and National
Democratic Institute (NDI), a security source and employees at
the organisations said.

The U.S. State Department said the raids were "inconsistent
with the bilateral cooperation we have had over many years" and
urged Egyptian authorities to immediately halt "harassment" of
non-governmental organisation staff.

State Department spokeswoman Victoria Nuland indicated to a
news briefing that military aid could be difficult to push
through Congress if the situation did not improve.

"We do have a number of new reporting and transparency
requirements on funding to Egypt that we have to make to
Congress," Nuland said. "The Egyptian government is well aware
of that and it certainly needs to be aware of that in the
context of how quickly this issue gets resolved."

Nuland said U.S. officials had been in touch with Egyptian
Prime Minister Kamal al-Ganzouri and with Egypt's ambassador to
Washington to underscore Washington's concern.

Germany's Foreign Ministry said it would summon Egypt's
ambassador to Berlin on Friday after the raid targeted the
German-based Konrad Adenauer Foundation, which is close to
Chancellor Angela Merkel's Christian Democrats.

CRITICISM OF ARMY

Civil society groups, a driving force behind the protests
that toppled President Hosni Mubarak in February, have become
increasingly vocal in criticising what they call the army's
heavy-handed tactics in dealing with street unrest.

"This is a campaign the military council has launched to
defame and stigmatise activists, rights groups and the various
forces that have participated in the making of the January 25
revolution," said 27 civil society groups in a joint statement.

The groups added that such a campaign was "unprecedented
even in the era of Mubarak and aimed to cover the failures of
the military council in its management of the transitional
period."

The ruling generals have pledged to stand aside by mid-2012
but many democracy activists say the military is keen to
preserve its privileges and broad business interests.

One analyst said the crackdown on civil society groups was
an attempt to stymie the protest movement.

"Civil society groups and the media are the two pillars of a
successful revolution, because they are radical in their
demands. The military council launches intermittent attacks to
contain them," said analyst and researcher Yasser Abdel Aziz.

The U.S. State Department comments followed stinging
criticism by U.S. Secretary of State Hillary Clinton over the
"systematic degradation" of women during protests in Cairo this
month in which 17 people were killed.

Images of troops beating demonstrators as they lay on the
ground brought thousands of Egyptians onto the streets in
protest. The harsh treatment of women protesters attracted
particular attention.

The National Democratic Institute (NDI)said in an e-mailed
statement that the raid took place on its offices in Cairo,
Alexandria and Assiut, from where police confiscated equipment
and documents.

"Cracking down on organisations whose sole purpose is to
support the democratic process during Egypt's historic
transition sends a disturbing signal," NDI President Kenneth
Wollack was quoted as saying.

One person working at NDI, who gave her name as Rawda, said:
"They are grabbing all the papers and laptops."

A Reuters television reporter who approached the offices of
the International Republican Institute (IRI) in central Cairo
found the doors sealed shut with wax and saw several police
vehicles driving away from the area.

The NDI and IRI, which are loosely associated with the U.S.
Democratic and Republican political parties and receive U.S.
government funding, say they take a neutral political stance,
fostering democracy in Egypt by training members of nascent
parties in democratic processes.

CAMPAIGN

Other groups that were raided included U.S.-based Freedom
House and local groups set up to defend judicial independence,
individual freedoms and democracy, according to the Egyptian
Organisation for Human Rights.

"This looks like a campaign against human rights defenders,"
said prominent Egyptian rights activist Negad al-Borai. He said
similar campaigns happened during Mubarak's three-decade rule.

"For this to happen after what we call the 'revolution', I
am astonished."

Egypt's military has vowed to investigate how pro-democracy
and rights organisations are funded and has said repeatedly it
will not tolerate foreign interference in the country's affairs.

Egyptian presidential hopeful and former U.N. nuclear
watchdog head Mohamed ElBaradei said: "Human rights
organisations are the icon of freedom ... Everyone will be
watching closely any illegal attempts to distort them. The
revolution will prevail."
(Additional reporting by Yasmine Saleh and Patrick Werr;
Christian Ruettger in Berlin; and Andrew Quinn in Washington;
Writing by Tom Pfeiffer; Editing by Myra MacDonald)